How to Leave Life Insurance to a Minor: What You Need to Know

If you've decided to purchase a life insurance policy, you're already taking one of the most logical and compassionate steps you can take to help protect your loved ones if you're not around. Your life insurance beneficiary can rest secure in the knowledge that their financial needs will be addressed through your gift.

One of the most significant decisions you'll have to make when you buy your policy, of course, is who you'll name to receive the payout if you pass away. That can be a single beneficiary, multiple beneficiaries, or an organization. You can also have the payout go into a trust or another financial vehicle.

Naming their spouse as the primary beneficiary makes the most sense for many people. But what about your children? Can a minor be a beneficiary? 

If you're wondering, can a minor be a life insurance beneficiary? read on for some suggestions on how to benefit your heirs in a way that better protects your finances — and your children.

Naming beneficiaries in a will

Before we look at the issues surrounding whether a life insurance beneficiary can be a minor, let's first address leaving money to minors in your will. It's likely you'll name your spouse or partner as your primary beneficiary in your will. However, there may be times when you have other wishes. For example, if you're a single parent, you may wish to leave property, money, or other belongings to your children.

Doing so directly, however, may not be wise. A child or children under the age of 18 (in most states) cannot directly inherit money via a will or benefit from a life insurance policy. Instead, you'll want to use your will to name a guardian for your children, who'll care for them until they reach adulthood. 

As you make your estate plans, keep in mind the difference between a beneficiary vs. dependent. A beneficiary is the person, persons, or organization eligible to receive the payout from your life insurance policy. A dependent, meanwhile, is usually a spouse or child who relies on you for financial assistance.

Can a life insurance beneficiary be a minor?

The short answer is no. But perhaps you're wondering, who should be my beneficiary? If the only answer that makes sense to you is your child, there are steps you can take to ensure they'll be cared for into adulthood and benefit from your foresight in taking out an insurance policy for them. 

So, what happens when a beneficiary is a minor? There are several ways you can go about this. To do it properly, you'll need to consult a lawyer skilled at family law. It also helps to have a knowledgeable life insurance representative who can answer questions. One option open to you is setting up a trust.

Establishing a trust for your child

Setting up a trust for a child isn't difficult; it's an excellent way to protect your child financially. A trust allows you to name a trustee — someone you know well and trust implicitly — who will take over the management of your child's finances until they are of age. 

You would name the trustee in your will or living trust and leave any instructions you may have for how the life insurance proceeds can be spent — on education, for example, or day-to-day living expenses. If you have more than one life insurance beneficiary, you can set up something called a "pot trust" that will allow the trustee to see to the needs of all your children. 

Life insurance and UTMA account

Another way to leave life insurance to a minor is by utilizing the Uniform Transfers to Minors Act, or UTMA. As with setting up a trust, you name a custodian for your child and then set up an account with a financial institution. The life insurance payout is directed to this account, along with any other assets you wish to transfer to them.

A UTMA account is perhaps the simplest way to set up the finances for a life insurance child beneficiary. The rules for serving as a custodian of a UTMA account vary from state to state, so make sure you're clear on the laws in your state. In most places, the beneficiary of the UTMA account can receive funds as soon as they turn 18. 

How to name a custodian for a minor beneficiary

Your life insurance company can give you a form to name a custodian for your minor life insurance beneficiary. By naming someone trusted to take on this responsibility, you avoid the possibility that your life insurance payout will be held up in lengthy probate court processes. If you're a divorced, non-custodial parent, you can even name your ex-spouse as the custodian.

Make sure you discuss your plans with the person you wish to name as the custodian for your life insurance beneficiary child under 18. It's essential to choose someone financially savvy enough to understand what you're asking them to do and who'll also have your children's best interests at heart.

If you wish to establish a life insurance policy that will benefit your minor children, your first step is determining your coverage limits. If you're asking yourself how much insurance do I need, Ethos life's Coverage Calculator can help you decide. 

New to the world of life insurance? Check out our handy guide to how insurance works to get answers to your questions about life insurance online today.